FY2018 Results And FY2019 Forecasts
FY2018 Results andFY2019 ForecastsKazuo KoshijiSenior Corporate OfficerCorporate AdministrationChief Financial OfficerHead of Finance and Administration DivisionCopyright 2019 Santen Pharmaceutical Co., Ltd. All rights reserved.
FY2018 Financial Resultsended March 31, 2019
FY2018 Financial HighlightsAchieved higher revenue with steady growth overseas and key products in Japan more than offsettingnegative impact from NHI price cuts in Japan; Strong OP growth on higher revenue and cost optimizationFY2018(JPY billions)FY2017Core basisFull YearactualFull Yearactual224.9234.0-86.4RevenueFull yearforecastvs 3.33.4%146.098.1%SGA-68.8-71.33.6%-73.097.6%R&D 0100.5%Net 345.131.9-9.4%30.4105.1%RevenueCOGSGross profitYoYIFRSOPNet profitJapan: Growth of key products absorbed the negative impact fromNHI price cutsOverseas: Continued strong growth, particularly in AsiaConsolidated total growth: 9.1 bil JPY ( 4.0%)Operating profitCore basisIncreased 2.9 bil JPY ( 6.3%) with continued overseas growthand group-wide cost optimization offsetting negative impact fromNHI price cutsIFRSActual tax ratioROE10.2%25.9%13.0%11.1%-1.9ptUSDJPY 110.94JPY 110.82 0.1%JPY 110.00-0.7%EURJPY 129.92JPY 128.38 1.2%JPY 130.00 1.2%CNYJPY 16.84JPY 16.52 1.9%JPY 17.00 2.8%Business growth on core basis and gain on sale of formerHQ/Osaka plant site, increased by 6.4 bil JPY ( 16.6%)IFRS Net profit : JPY appreciation, -: JPY depreciationWith one-time benefit of reduced corporate tax rate in U.S. in prioryear and impact of accounting treatment of InnFocus acquisitioncosts, decreased by 3.3 bil JPY (-9.4%)3
FY2018 RevenueJapan: steady growth of key products; Overseas: strong growth, particularly in AsiaJapan business(JPY billions)FY17JapanOverseasPharma141.1 143.0 1.3%OTC14.3 13.9-2.6%Surgical2.5 2.6 2.9%Asia30.6 36.9 20.6%1.90.1SurgicalTrial sales begun in Nov. of new IOL product, LENTIS Comfort, whichprovides comfortable vision across intermediate and far distances(officially launched in Apr. 2019)6.8-0.535.0 Overseas business36.21.6 3.3%-0.4EMEA (currency impact)OtherOTCGood progress in premium products for domestic market mitigatednegative comparative impact from marketing campaign in prior year and alower purchases by visitors to Japan due to natural disasters andregulation changes-0.4Asia (currency impact)EMEAJapanPharmaGrowth of Eylea*¹ ( 9.0%), Alesion ( 15.4%), Diquas ( 8.7%) mitigatedimpact of NHI price cuts (over -4%)(Revenue increased by 10.7 bil JPY ( 7.7%) , excluding the negativeimpacts from NHI price cuts and transitory factors)Good start for new products (Eybelis launched in Nov., Well Wash Eye,cleansing eye drop launched in Dec.)224.91.5 AsiaContinued strong revenue growth of over 20% broadly across the region.China: 20.0%, Korea: 20.9% (JPY)Asia region:21 launches, 42 approvalsTogether with existing products, creating future sustainable growthEMEAGrowth of Ikervis and glaucoma products particularly in Italy and Germanymore than offset the comparative impact of one-time revenue boost inRussia in prior year0.01.5FY18234.0 4.0%( 9.1)Eylea*¹： Co-promoted product ofBayer Yakuhin, Ltd. (MAH)FY2017FY2018USDJPY 110.94JPY 110.82EURJPY 129.92JPY 128.38CNYJPY 16.84JPY 16.524
FY2018 Core Operating ProfitStrong growth in overseas business and group-wide cost optimization to offset NHI price cut impact(JPY billions)JapanJapan business45.4FY17Pharma65.1 63.7-2.2%OTC5.8 5.8 0.0%Overseas Surgical0.0 0.17.3 11.5AsiaJapan Pharma0.0 57.0%Overseas business4.4-0.26.0 7.6-0.1-4.6 -4.1HQ SGA0.0-10.8 -12.3R&D-24.4 -23.8Other1.0 -0.3Significantly higher with revenue growth and lower cost ofgoods soldEMEAAchieved increase in profit with revenue growth in keycountries and cost optimization efforts more than offsettingthe comparative impact of one-time boost to revenue andprofit in Russia in prior yearUSLower mainly on postponed U.S. market launch relatedexpenses for DE-109R&DexpensesLower on postponed DE-109 (restarted in Q3), DE-126study costs completed in prior year (data now underevaluation), and cost optimization efforts0.5-11.0%(US currency impact)HQAsia1.7 27.2%(EMEA currency impact)USCost optimization efforts partially mitigated the negativeimpact of COGS ratio increase (NHI price cuts and productmix) and channel inventory adjustment0.1(Asia currency impact)EMEA-1.4-1.5 13.5%0.6-2.6%-1.348.2FY18 6.3%( 2.9)FY2017FY2018USDJPY 110.94JPY 110.82EURJPY 129.92JPY 128.38CNYJPY 16.84JPY 16.525
FY2019 Forecastended March 31, 2020
FY2019 Forecast OverviewAs middle year of MTP2020, targeting to raise both revenue growth and operating efficiency（JPY billions）FY2018ActualCore basisFY2019ForecastYoYRevenueJapan:To grow with increased revenue from key products (including Eybelis, Highdose Alesion and LENTIS Comfort) covering the negative impact from NHIprice .125.2%12.5%37.726.1%4.5%12.8%0.3ptOperating profit45.134.5-23.5%Net profit31.923.2-27.4%Actual tax 6.52110.00130.0016.00 0.7%-1.2% 3.3%Other expenses increase mainly from raised assumptions regardingDE-128 milestone payment probability based on developmentprogress; Operating profit and net profit lower YoYGross profitSGAR&D expensesOperating profitNet profitActual tax ratioROEIFRSUSDEURCNYOverseas:Maximize revenue both in Asia and EMEAConsolidated total revenue 248 bil JPY ( 6.0%)Core basisContinuous profit improvement from core business SGA: 74 bil JPY ( 3.8%)Accelerate cost optimization under new management framework R&D expenses: 28 bil JPY ( 17.9%)Continue strategic investment to lead growth to 2020 and beyondOperating profit: 51 bil JPY ( 5.7%) : JPY appreciation, -: JPY depreciation7
FY2019 ForecastGrowth in Japan and overseas businesses and further optimization of costs in order to realizestrategic investment and higher profit(JPY billions)RevenueCore OP234.01.60.82.46.348.2FY18 Actual143.0 144.5 1.1%Japan Pharma63.7 65.3 2.6%13.9 14.7 5.6%Japan OTC5.8 6.1 5.5%2.6 5.0 90.5%Japan Surgical0.1 1.6 1824.0%36.9 42.3 14.8%11.5 Asia-0.81.60.31.53.614.4 24.7%-0.8(Asia currency impact)2.236.2 38.8EMEA 7.4%7.6 8.50.8 12.4%(EMEA currency impact)0.50.1US(US currency impact)HQ SGAR&D1.51.1 2.6Other-4.1 -0.3-4.4 6.7%0.0-12.3 -12.6 2.5%-23.8 -28.0 17.9%-0.3 0.1-0.3-4.20.4FY19 Forecast248.0USDJPY 110.82FY2019ForecastJPY 110.00EURJPY 128.38JPY 130.00CNYJPY 16.52JPY 16.00 6.0%( 14.0)FY201851.0 5.7%(2.8)8
Consolidated Performance 6.0%RevenueCore OP8.9%248.0 4.0%(JPY billions, CAGR)234.0224.9195.3199.15.5%161.839.1FY2014 5.7% 2019FCST9
Performance by Business (Japan)【OTC】【Japan pharma】 6.5%(JPY billions, CAGR) 1.2% 17.2%144.5141.1 143.0124.5Revenue 1.4%130.010.9105.6FY14【Surgical】12.414.313.9 16.3%14.7 FY14FY15FY16FY17FY18FY14 FY15 FY16 FY17 FY18 FY19FCSTFY19FCST 4.5% 28.3% 0.2%65.160.452.5OPbefore R&D61.763.765.3 2.8%4.01.84.75.85.86.11.6 47.8%0.30.2-0.30.00.110
Performance by Business (Asia)Japan yen basisLocal currency basis(JPY billions, CAGR)(Conversion with FY19 rate for all FY) 20.8% 17.6% 15FY16FY17 35.2%FY18FY19FCST 39.9%14.4FY14FY15FY16FY17 38.0%11.5OPbefore R&D4.8FY18FY19FCST 41.8%14.311.37.33.242.336.230.622.5 19.5%7.14.92.84.25.011
Performance by Business (EMEA)EURO basisJapan yen basis(JPY billions, CAGR) 21.6%35.026.0Revenue(EUR millions, CAGR) Y15FY16FY17FY18FY19FCSTFY14FY15FY16 19.5% 19.2%OPbefore R&DFY19FCST 81.2% 79.6%7.68.559.26.065.746.029.53.50.8-0.7 5.3%239.814.6FY14 23.5%6.1-5.212
FY2019 Dividend Forecast Annual DividendsFY2019 forecast: JPY 26 / share Stable and sustained return to shareholders Mid and Long term strategic investment for growth beyond 2020 Implementing shareholder returns policy to achieve the best balancebetween above two priorities considering dividends and total return50.8%Payout ratio (%)49.1%51.1%37.8%Annual dividendsper share (JPY)Share buyback (b yen)Total e company implemented a 5-for-1 stock split on April 1, 2015. Accordingly, the calculations of annual dividend per share have been adjusted in all periods for comparison purposes.J-GAAP standards used until FY13, IFRS applied from FY14.13
Status of Research & DevelopmentNaveed Shams, M.D., Ph.D.Senior Corporate OfficerChief Scientific OfficerHead of Global Research & Development
Pipeline / Product Development Status (1)DE-111TAPCOM / TAPTIQOMCombination of tafluprostand timolol maleateDE-117EYBELISEP2 receptor agonistIndicationRegionGlaucoma /ocular hypertensionChinaP3Plan: 1st half FY2020 P3 completionUSP3Plan: Jan Jun 2020 P3 completionGlaucoma /ocular hypertensionJapanAsiaDE-126FP/EP3 receptorsdual agonistDE-128PRESERFLO MicroShuntDE-130ACatioprostlatanoprostAs of May 9, 2019Updated information is underlinedGlaucoma /ocular hypertensionGlaucomaGlaucoma /ocular hypertensionStatusLaunchedFiled (Apr 2019, including Korea)Plan: 1st half of FY2020 approvalUSP2bJapanUSP2/3Plan: calendar 2019 PMA rolling submission completion, calendar 2020launchEuropeCE mark receivedEuropeP3 started (Apr 2019)Plan: calendar 2021 P3 completionAsia15
Pipeline / Product Development Status (2)IndicationUSDE-109IVT sirolimusUveitisStatusRegionP3Plan: Jan Jun 2021 P3 completionJapanP3EuropeP3AsiaFiledAnti-endoglin antibodyWet age-related maculardegenerationUSP2aPlan: 2nd half of FY2019 P2a completionDE-089Dry ekacia / VerkaziaciclosporinDE-114Aepinastine HCl(high dose)DE-127atropine sulfateMD-16Intraocular lensVernal kerato-conjunctivitsAllergic conjunctivitisMyopiaCataractAsia*Filed, Plan: Jul Dec 2019 approvalOthersApproved, Plan: calendar 2019 launchJapanFiledPlan: Jul Dec 2019 approvalJapanPlan: 1st half of FY2019 P2/3 startAsiaJapanAs of May 9, 2019Updated information is underlined*Product name IKERVISP2Plan: 2nd half of FY2019 P2 completionP3 completion (Mar 2019)Plan: 1st half of FY2019 submission16
Appendix
FY2018 Profit and Loss StatementFY2017Actual(JPY 179.4%Net profit (IFRS)35.315.7%31.913.6%-9.4%Core operating profit45.420.2%48.220.6%6.3%Core net profit33.514.9%36.115.4%7.9%COGSGross profitSGA expensesR&D expensesAmortization on intangibleassets assosiated withproductsOther incomeOther expensesOperating profit (IFRS)Finance incomeFinance expensesProfit before taxIncome tax expensesActual tax ratio15.7ptGain on sale of former HQ /Osaka plant siteDue to the yearly re-evaluationof non-current liability from theacquisition of InnFocusDue to a significant reduction in income taxexpense for the previous fiscal year associatedwith a reduction in the US corporate tax rate atthe end of 2017 and the deferred tax liabilitiesrecognized as a result of the acquisition ofInnFocus, Inc.18
FY2019 Profit and Loss Statement ForecastFY2018Actual(JPY nueYoY6.0%248.0COGS-90.8-38.8%-95.0-38.3%4.7%Gross 9%-4.8%-11.132.4%-4.5%-0.7%Net profit (IFRS)31.913.6%23.29.4%-27.4%Core operating profit48.220.6%51.020.6%5.7%Core net profit36.115.4%37.715.2%4.5%SGA expensesR&D expensesAmortization on intangibleassets assosiated withproductsOther incomeOther expensesOperating profit (IFRS)Finance incomeFinance expensesProfit before taxIncome tax expensesActual tax ratio6.4ptStarting amortization of intangible assetson PRESERFLO MicroShuntDue to the increase of the fair value ofcontingent payment on InnFocus acquisition(milestone would be paid on the progress ofDE-128 status during FY2019)Tax effect cannot be recognized on theexpense from the change in the fair valueof contingent payment (described above),income tax expense would not be reduced,resulting in an increase in actual tax ratio19
FY2017, FY2018, FY2019 (Forecast) Profit and Loss StatementFY2017Actual(JPY GS-86.4-38.4%-90.8-38.8%5.1%-95.0-38.3%4.7%Gross .225.9%-4.8%179.4%-4.5%-0.7%15.7pt-11.132.4%Net profit (IFRS)35.315.7%31.913.6%-9.4%23.29.4%-27.4%Core operating profit45.420.2%48.220.6%6.3%51.020.6%5.7%Core net profit33.514.9%36.115.4%7.9%37.715.2%4.5%SGA expensesR&D expensesAmortization on intangibleassets assosiated withproductsOther incomeOther expensesOperating profit (IFRS)Finance incomeFinance expensesProfit before taxIncome tax expensesActual tax ratio6.4pt20
FY2018 Financial PositionMarch 31,2018Mar 31, 2019Mar 31, 2018Non-current e assets134.5131.1-3.4Financial assets35.830.0-5.7Deferred tax tories30.635.24.6IntangibleassetsTrade and other receivables78.784.66.0Cash and cash equivalents69.370.81.5Other tangibleassetsOther4.84.1-0.7Other 0.1Deferred tax liabilities12.99.4-3.5Other22.325.02.7Current liabilities62.260.7-1.5Trade and other liabilities29.732.12.3Other financial ty, plant and equipment391.2Current 6.4205.170.6287.6(74%)65.3292.6(75%)Cash and 8.070.860.7Change205.1Former HQ / Osaka plant site was soldduring Q3 FY18. Agreement reached for thesale of plant and its operations in Finland (tobe accounted for in FY2019) as part ofinitiatives to reduce assets and reorganize(JPY billions)Mar 31,2019Current liabilityNon-current liabilitiesFinancial liabilitiesIncome tax payableOther21
Cash Flow Changes(JPY billions)99.8Operating CF-6.572.4 33.9Investing CFImpact fromFx change 17.052.3Financing CF25.429.070.869.3-47.565.9 1.542.837.122.532.910.8Cash Balance0.90.0-1.6-24.1-1.5-28.2 -28.7-8.3-17.6-2.9-0.3-28.1-61.720132014-Increase of investingactivity cash-out dueto the acquisition ofMSD products-Increase of financingactivity cash-in due tolong term debt for theMSD productacquisition201520162017-Operating cash-Expenditures on-Operating CF increasedexpenses increased onoperating activitiesdue to the increase ofpension contributionsincreased due tonet profit after taxreducing retirementincome tax payments-Each CF increasedbenefit liabilities (cashon gains on thesince there were noflow from operatingtransfer of anti-RAitems in FY2017 suchactivities lower YoY)business in fiscal 2015as income tax-Revenue from(Decrease in operatingpayments on gains oninvestment activitiescash flow YoY)the business transfer,increased due to the-Investing activities cashAcquisition, sharetransfer of anti-RAoutflow increased onrepurchase in FY2016.businessInnFocus acquisition-Expenditure on financing -Expenditure onactivities increased duefinancing activitiesto partial repayment ofincreased due to sharelong-term borrowingsrepurchase andrepayment of long-termborrowings2018-Operating CFdecreased due to thedecrease of net profitafter tax and increaseof tax payment-Investing CFincreased from thegain on the sale offormer HQ /Osakaplant site-Financing CFdecreased due to theshare buyback22
FY2018 Segment RevenueSegment RevenueJapan(JPY thersOTCMedical devicesOthersSales ratio67.0%23
Revenue by Business (Graph) / FY2018JapanEMEA(JPY billions)18%Eylea*135%3%19.4Diquas13.913%(JPY billions)12%56.2AlesionASIA(JPY billions)15%Cosopt4% 0.9Others17.5Total160.5Total36.232%Eylea*: Co-promoted product of Bayer Yakuhin, Ltd. (MAH)ChinaCravit1% %14%46%36%(JPY billions)(JPY billions)(JPY billions)16%Revenue by business segmentAsia (Ex. China)30%JapanTotalGlaucomaDry eyeAllergyBacterial conjunctivitisOthers68.6%15.8%0.2%15.4%234.0China Korea Vietnam Taiwan Thailand OthersAsia58%23%4% 6%6%4%36.9Italy Germany Russia France Finland OthersEMEAIntravitreal VEGF nhibitorAsia EMEA North America14% 12% 11% 7% 7%48%36.224
Capital Expenditures / Depreciation & AmortizationFY2017（JPY oYCapital expenditures5.44.4%7.232.6%10.038.5%Depreciation and amortization*4.219.7%4.0-4.2%4.819.6%Amortization on intangible assetsassociated with %----2.8-0.79.2%0.7-1.2%0.71.8%Intangible assets-Merck productsIntangible assets-PRESERFLO MicroShuntIntangible assets-Ikervis*Excludes amortization on intangible assets associated with products and long-term prepaid expenses25
Prescription Ophthalmic Market in .5%71.8%No.167.510.3%93.69.8%72.1%No.1Corneal/dry 4%12.6-9.4%35.1%No.1Anti-infection*Including co-promoted product (Anti-VEGF Eylea) of Bayer Yakuhin, Ltd. (MAH)Source: Copyright 2019 IQVIA. IMS-JPM 2016.4-2019.3; Santen analysis based on IQVIA data. Reprinted with permission.26
Agreement with Glaukos for Exclusive Distribution ofPRESERFLO MicroShunt (DE-128) in U.S.U.S. market entrystrategy Maximize the value of each differentiated productthrough tailored strategy Achieve profit at earliest timingPRESERFLO MicroShunt High surgical glaucoma expertise Strong presence in US Aiming for leading efficacy and greater safetycompared to existing surgical methods Upon approval, provide PRESERFLO MicroShunt to morepatients in the most timely way possible Shorten the start-up period / minimize U.S. entry costs Agreement with Glaukos for exclusive distribution is solely for the U.S. Santen to gain a foothold in U.S. market and
(US currency impact)-1.5 R&D 0.6 Other-1.3 (Asia currency impact) FY18 Asia Surgical 0.1 OTC 0.0-0.2 Pharma-0.1 FY17 45.4 48.2 (EMEA currency impact) HQ SGA 0.5 6.3% ( 2.9) Japan Overseas HQ Japan business Japan Pharma Cost optimization efforts partially mitigated the negative impact of COG
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